China's yuan firmed against the US dollar on Tuesday, despite the central bank's weaker midpoint fixing, after the greenback pared some of its overnight gains in Asian trade, although trading ranges remained tight. The People's Bank of China fixed its official yuan midpoint at 6.8956 per dollar prior to the market open on Tuesday, the weakest level since April 11 and 25 pips or 0.04 percent softer than the previous fix of 6.8931.

However, traders said a pullback in the dollar index lifted the Chinese currency in morning trade while overall domestic foreign exchange market was stable. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 7.092, -2.77 percent away from the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate. The spot market opened at 6.8946 per dollar and was changing hands at 6.8955 at midday, 15 pips stronger than the previous late session close and flat from the midpoint. The daily trading volume stood at $11.34 billion as of midday. The onshore spot also gained some support from its offshore counterpart amid rising yuan borrowing costs in Hong Kong. The offshore yuan traded 0.01 percent firmer than the onshore spot at 6.8951 per dollar as of midday.

Copyright Reuters, 2017